Seeking Alpha
Long/short equity, deep value, special situations, contrarian
Profile| Send Message|
( followers)  

As reported by Bloomberg, MBIA (NYSE:MBI) was upgraded to investment grade from S&P for the first time in four years. The company's senior unsecured debt was upgraded from B- to BBB. Furthermore -- and most important -- MBIA's unit National Public Finance Guarantee Corp., its municipal debt guaranty business unit, was upgraded from BBB to A.

As per management's discussion of is recent Q1 2013 quarter, Joseph W. Brown the CEO of MBIA had this to say:

Importantly, so far, all the putback recoverables we have collected have been consistent with the amounts we had recorded. The strategic importance of these settlements for your company, however, is far from de minimis. First, we had previously disclosed that if MBIA Corp. did not reach a settlement with Bank of America, the resulting liquidity stress could have caused the regulator to place it into a rehabilitation proceeding. The rehabilitation process would have eliminated any chance of our shareholders realizing any value from MBIA Corp. and most likely would have had a similar impact on our surplus note holders. In addition, while the rehabilitation would not have created a cross default at MBIA Inc., it would have imposed additional risks and costs on the holding companies and would have potentially further delayed the resumption of new business activities at National.

That risk has now been reduced substantially as the vast majority of the most potentially volatile payment risks have been eliminated and we now have access to the $500 million Bank of America loan facility. You should think of the loan facility as a bridge to the collection of the remaining of our putback recoverables, which now have a balance sheet value of over $1 billion. We are not there yet as there are still a few parties we need to collect, but that day is fast approaching, and when we get there, the risk of rehabilitation will be reduced to insignificant levels.

The last sentence is the most important -- " the risk of rehabilitation will be reduced to insignificant levels".

What this means is that the company -- and as proved by the S&P upgrade -- is back in business. By "back in business", I mean that it can begin to write meaningful amounts of insurance business once again, something that it has been unable to do since 2008.

While more investigation is warranted by investors as far as the balance sheet is concerned, I think it's fair to say that the possibility of insolvency is officially over and the company can finally look ahead, after many years of being not able to do anything.

As per the company's Q1 2013 results, Adjusted Book Value (non-GAAP) was $30.56 per share at March 31, 2013 and the company recorded net income of $164 million, or $0.84 per share, compared with net income of $10 million, or $0.05 per share, for the first quarter of 2012. The company's stock closed on Friday around $15.

Source: MBIA Is Back In Business